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What typically happens to smaller firms when they are being eaten up by mega-companies like IBM seems pretty obvious – they go to the dogs! Key executives will leave the team, product roadmaps will loose their binding character and strategy will get fuzzy due to the sheer magnitude of the organization and its inherent complexity. But not so with Softlayer / IBM.
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Analyst View // Carlo Velten
© Crisp Research 2014
Softlayer – IBM´s new quarterback for the
cloud
Analyst View
Autor: Carlo Velten, Senior Analyst
Datum: 11.07.2014 (originally published in march 2014)
Tags: IaaS, IBM, Softlayer
Analyst View // Carlo Velten
© Crisp Research 2014
What typically happens to smaller firms when they are being eaten
up by mega-companies like IBM seems pretty obvious – they go to
the dogs! Key executives will leave the team, product roadmaps will
loose their binding character and strategy will get fuzzy due to the
sheer magnitude of the organization and its inherent complexity.
But not so with Softlayer / IBM.
It has become obvious over the last 6 months that IBM`s senior
management had more in mind than a pure opportunistic
acquisition when they bought hosting firm Softlayer in summer
2013 for 2 billion USD. Eric Clementi who was among the early
cloud advocates within IBM has made a strategic bet that will
enable IBM to regain its position as one of the key cloud leaders in
the market over the next 2-3 years.
Softlayer – IBM´s new strategic asset
IBM has officially dedicated over 1.2 billion USD in additional
investments to its new cloud data center infrastructure. That
makes roughly 80-100 million USD for each of the 15 newly
planned data center locations (15 new DC`s adding to 13 Softlayer
and 15 IBM data centers) that will cover all geographic regions.
Although IBM has tremendous in-house expertise when it comes to
building and operating data center facilities, the new cloud data
centers will follow the blueprint of Softlayer! Why that?
As a typical hosting provider Softlayer does not only command a
highly scalable data center architecture with over 80,000 running
Analyst View // Carlo Velten
© Crisp Research 2014
servers. It is foremost the highly cost-efficient data center
operations and broad set of services that makes it attractive for
IBM to switch platforms from its own IBM SmartCloud to the
Softlayer platform. What Softlayer also brings to the table is a
substantial revenue share. Crisp Research estimates the annual
revenue for 2013 around 520 million USD. Given the new
investments and the IBM brand as a backing for enterprise deals –
the 2014 revenue can easily be around 600 million up to 1 billion
USD.
Within a positive market scenario the new IBM/Softlayer business
unit is likely to surpass 4 billion USD in revenue within the next 5
years and thereby contributing up to 10% of IBM GTS revenue by
the end of 2018.
Softlayer to become IBM`s prime cloud delivery platform
But this is only possible if IBM will stick to its current roadmap and
make Softlayer the prime cloud delivery platform for its new SaaS
and PaaS-offerings. As of today IBM plans to make most of its
software portfolio accessible as cloud services – within shared,
hybrid and private cloud environments. For example, the
CloudFoundry-based IBM Bluemix-offerings (PaaS) is already
being hosted on the Softlayer platform. The same will happen to
new collaboration services (e.g. Connect), infrastructure
management solutions and even “Watson”-based analytics
services.
Analyst View // Carlo Velten
© Crisp Research 2014
And there is even more evidence that IBM is getting down to
business with Softlayer. Relatively unnoticed IBM has migrated
hundreds of customers from its SmartCloud to the Softlayer
platform over the course of the last 5 months. It could be stated
that this was one of the largest cloud migrations (vendor-to-
vendor) - by the number of clients. But not in terms of capacity.
Most of the workloads were “under the radar” applications.
The IBM SmartCloud has been never been more than a stepchild in
IBM´s overall strategy. The platform was not capable of handling
thousands of agile and scalable web workloads in a competitive
operations model. Thereby the IBM senior management team has
come to the right decision – let Softlayer grow – shut SmartCloud
down.
Bare metal cloud hosting– the secret sauce in the IaaS market?
Over the last 5 years the cloud market has gone a long way in terms
of technical maturity and overall adoption. And what vendors and
CIOs both learned alike is that there is a clear demand for different
types of cloud infrastructure services. One-size-fits all virtual
machines are not the right solution for all customers. Workloads
have highly differentiated characteristics. Especially for advanced
workloads “dedicated performance” instead of mellow SLAs can
help the customers to sleep better. Business cases vary in terms of
flexibility and cost. As more and more workloads are migrated
towards the cloud “cost prediction” becomes key to numerous CIOs
and CTOs. To cover baseline infrastructure capacity reserved
Analyst View // Carlo Velten
© Crisp Research 2014
resources (e.g. bare metal or dedicated VMs) help to save budget.
These savings can be allocated to innovation projects or to cover
“peak” capacity.
The market for infrastructure-as-a-service (IaaS) is still under
development and covers a large spectrum of providers and delivery
models. Ranging from the large public cloud platform providers
AWS, Google and Microsoft Azure who offer mainly standardized
services to the classical managed service providers with their
private cloud offerings. That gap is being bridged by a small
number of hosting firms that have understood to transform their
portfolio in direction of cloud. Softlayer is among the group of Host
Europe Group, OVH, Rackspace et al. that combine agility,
dedicated performance and cost predictability in the right balance
together with solid support operations. Looking at the growth
numbers delivered by this peer group over the last years we can
reason that the “cloud hosting” model has a huge fan base in the
market. This is mainly true for SMB customers, eCommerce firms
and part of the startup world.
Remaining questions and outlook
Softlayer has a lot to offer for IBM. And IBM seems to appreciate
the new capabilities and innovations. But some strategic questions
are not answered yet. For example: How does the Softlayer hosting
business fits with the IBM high-margin model on the long run?
Even when IBM is able to drag enterprise customers (who are
willing to pay more for dedicated compute power then for virtual
Analyst View // Carlo Velten
© Crisp Research 2014
compute power) onto its new platform the IaaS business will not
have the same margins like the Mainframe business.
One next question relates to IBM´s plan to migrate its entire
software portfolio to the cloud (“SaaS First”). The ambitious
growth plan for Softlayer will only pay off if the migration and go-
to-market for the different software solutions is successful and well
communicated. Currently it is not quite clear which of the
hundreds of software solutions are able to run in the cloud and
which of them will be migrated first.
But the most important question is: Will IBM stick to its plan?
From the perspective of Crisp Research there is no way out. After
the current announcements customers are betting on IBM
Softlayer. SmartCloud is not a trusted platform any longer and will
go to the dead pool. IBM´s current activities look very promising.
But competition is fierce. Rich Miller estimated a whopping 7.3
billion USD that were spend by Google in 2013 to expand its data
center and network capacity (up from 3.2 billion USD in 2012).
With Softlayer as its new cloud quarterback IBM is back in the
game. The next 12-18 month will show, if AWS, Microsoft and
Google will get serious competition in the cloud capacity game
where “economies of scale” dictate the rules.
Analyst View // Carlo Velten
© Crisp Research 2014
Autor
Dr. Carlo Velten ist Managing Director des IT-
Research- und Beratungsunternehmens Crisp
Research. Seit über 15 Jahren berät Carlo Velten
als IT-Analyst namhafte Technologieunternehmen
in Marketing- und Strategiefragen. Seine Schwerpunktthemen sind
Cloud Strategy & Economics, Data Center Innovation und Digital
Business Transformation. Zuvor leitete er 8 Jahre lang gemeinsam
mit Steve Janata bei der Experton Group die „Cloud Computing &
Innovation Practice“ und war Initiator des „Cloud Vendor
Benchmark“. Davor war Carlo Velten verantwortlicher Senior
Analyst bei der TechConsult und dort für die Theman Open Source
und Web Computing verantwortlich. Dr. Carlo Velten ist
Jurymitglied bei den „Best-in-Cloud-Awards“ und engagiert sich
im Branchenverband BITKOM. Als Business Angel unterstützt er
junge Startups und ist politisch als Vorstand des Managerkreises
der Friedrich Ebert Stiftung aktiv.
Dr. Carlo Velten, Senior Analyst & Managing Director
https://www.xing.com/profiles/Carlo_Velten
Analyst View // Carlo Velten
© Crisp Research 2014
Über Crisp Research
Crisp Research ist ein europäisches IT-Research- und
Beratungsunternehmen. Mit einem Team erfahrener Analysten,
Berater und Software-Entwickler bewertet Crisp Research aktuelle
und kommende Technologie- und Markttrends. Crisp Research
unterstützt IT-Anbieter in Strategie-, Contentmarketing- und
Vertriebsfragen.
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Themenschwerpunkte von Crisp Research. Wir verfügen in
unseren Crisp Labs über ein internes Software-Developer Team
und testen aktuelle Cloud Services und Produkte unter Live-
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Analyst View // Carlo Velten
© Crisp Research 2014
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